deficits

Let’s take a minute and look at some simple math about the Federal Budget. Just as a mental exercise to keep some things in mind as we approach the fiscal cliff.

The 2012 Federal budget—a word I use very advisedly, since there wasn’t an actual, you know, budget—as enacted, spent a total of $3.59 trillion. Of that amount, total mandatory spending was $2.252 trillion. Discretionary spending, i.e., those things in the federal budget that can be arbitrarily changed without changing federal law, was $1.338 trillion. So, 63% of expenditures is mandatory spending which can’t be touched without changing Federal law.

On the revenue side, when you tote up all the taxes, excises, fees, etc., the Federal government collected $2.469 trillion. So, in 2012, once mandatory entitlements were covered, there was a grand total of $217 billion to fund the entirety of the remaining Federal government. The result was a deficit of $1.1 trillion.

So, to boil it down to the simplest terms, our current revenue is just enough to cover our mandatory spending, and about 1/3 of the defense budget. Everything else is funded solely through deficit spending.

When the Bush-era tax rates are raised in January, we will finally stick it to those rich SOBs and get the money they owe us. That will provide a massive influx of tax revenue in the amount of…uh…$42 billion in 2013. By the Democrats’ estimate. Which means the deficit will be slashed from $1.1 trillion to $1.058 trillion.

Ta da!

Every little bit helps, I guess.

Assuming the economy grows, and revenue keeps pace with the increases in mandatory spending. Which I’m not sure I’d bet a lot of money on.

I’m sure you have seen the chart that’s been circulating by Rex Nutting of Marketwatch in which he claims that Obama has overseen the least growth in federal spending. In fact what Nutting reproves is the old “lies, damn lies and statistics” cliché. James Pethokoukis takes his argument apart here.

Then there is this story today. It too pokes huge holes in the attempt downplay spending for the past few years during the Obama administration. In this case the story points out the accounting practices, or lack thereof, that Congress uses that would likely find any business using them accused of keeping double books:

The typical American household would have paid nearly all of its income in taxes last year to balance the budget if the government used standard accounting rules to compute the deficit, a USA TODAY analysis finds.

Under those accounting practices, the government ran red ink last year equal to $42,054 per household — nearly four times the official number reported under unique rules set by Congress.

A U.S. household’s median income is $49,445, the Census reports.

The big difference between the official deficit and standard accounting: Congress exempts itself from including the cost of promised retirement benefits. Yet companies, states and local governments must include retirement commitments in financial statements, as required by federal law and private boards that set accounting rules.

The deficit was $5 trillion last year under those rules. The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government’s books.

If you think unemployment is under reported, when it comes to the deficit, you ain’t seen nothin’ yet, brother.

$5 trillion dollars. Let that sink in a bit. If this were any business out there using standard accounting rules, that’s what they would, by law, have to report.

Congress? Well, they’re special. They get to make up the rules as they go along and then follow them only if they wish too (with the option then of again changing the rules to fit what they’ve decided to do). In fact, since today seems to be irony day, the irony is:

"By law, the federal government can’t tell the truth," says accountant Sheila Weinberg of the Chicago-based Institute for Truth in Accounting.

Amazing but not shocking. In fact, not even surprising. We didn’t get here by being told the truth.

I really do try not to be pessimistic about the future, but this is the kind of thing that keeps me up at night:

[W]ithout serious course correction, America is doomed. It starts with the money. For dominant powers, it always does – from the Roman Empire to the British Empire. “Declinism” is in the air these days, but for us full-time apocalyptics we’re already well past that stage. In the space of one generation, a nation of savers became the world’s largest debtors, and a nation of makers and doers became a cheap service economy. Everything that can be outsourced has been – manufacturing to by no means friendly nations overseas; and much of what’s left in agriculture and construction to the armies of the “undocumented”. At the lower end, Americans are educated at a higher cost per capita than any nation except Luxembourg in order to do minimal-skill checkout-line jobs about to be rendered obsolete by technology. At the upper end, America’s elite goes to school till early middle age in order to be credentialed for pseudo-employment as $350 grand-a-year diversity consultants (Michelle Obama) or in one of the many other phony-baloney makework schemes deriving from government micro-regulation of virtually every aspect of endeavor.

So we’re not facing “decline”. We’re already in it. What comes next is the “fall” – sudden, devastating, off the cliff. That’s why this election is consequential – because the Obama-Pelosi-Reid spending spree made what was vague and distant explicit and immediate. A lot of the debate about America’s date with destiny has an airy-fairy beyond-the-blue-horizon mid-century quality, all to do with long-term trends and other remote indicators. In reality, we’ll be lucky to make it through the short-term in sufficient shape to get finished off by the long-term. According to CBO projections, by 2055 interest payments on the debt will exceed federal revenues. But I don’t think we’ll need to worry about a “Government of the United States” at that stage. By 1788, Louis XVI’s government in France was spending a mere 60 per cent of revenues on debt service, and we all know how that worked out for the House of Bourbon the following year.

Oh, but wait, it gets worse, because we’re not just talking about the effect on the US. Our current path affects the whole world.

In 2009, the US spent about $665 billion on its military, the Chinese about $99 billion. If Beijing continues to buy American debt at the rate it has in recent times, then within a few years US interest payments on that debt will be covering the entire cost of the Chinese military. This summer, the Pentagon issued an alarming report to Congress on Beijing’s massive military build-up, including new missiles, upgraded bombers, and an aircraft-carrier R&D program intended to challenge US dominance in the Pacific. What the report didn’t mention is who’s paying for it.

Answer: Mr and Mrs America.

By 2015, the People’s Liberation Army, which is the largest employer on the planet, bigger even than the US Department of Community-Organizer Grant Applications, will be entirely funded by US taxpayers. When the Commies take Taiwan, suburban families in Connecticut and small businesses in Idaho will have paid for it.

When these kinds of crises hit, they often happen suddenly, without warning, often as the result of an event that is minor, in and of itself, but becomes the straw that breaks the camel’s back. When Gavrilo Princip popped a couple of slugs into Franz Ferdinand and his wife, Sophie, it seemed trivial. It was the kind of story that appeared on Page C-4 of Le Monde or the Times of London, and yet, weeks later, sparked a war that literally unmoored Western Civilization from everything that had gone before.

Let’s also be clear that this won’t be a European experience. The post-war European decline , if not painless, was at least very powerfully cushioned by the financial and political support of the United States. We won’t have that cushion.

In a two-party system, you have to work with what’s available. In America, one party is openly committed to driving the nation off the cliff, and the other party is full of guys content to go along for the ride as long as we shift down to third gear. That’s no longer enough of a choice.

Hard choices–very hard choices–are at hand. We will make those choices willingly, and try to maintain some control over our destiny, or reality will simply make those choices for us.

Democrats are particularly fond of that meme because it provides them the opportunity to again shift the blame for something on their arch enemy, George Bush. It is also a convenient way to claim they’re blameless for all of these trillions of dollars in deficit spending that has taken place over the years.

But a funny thing happened on the way to using this convincingly. The real numbers simply don’t support it. In fact, they show us something a lot more believable to be the cause of our new and huge deficits. And it is certainly not anything the Democrats want associated with them.

Randall Hoven at American Thinker does an excellent job of dismantling the myth that the Iraq War and George Bush’s decision to prosecute the war (with the permission of Congress – to include almost every Democrat) are the reason we’re suffering these huge deficits today. And he uses the CBO’s numbers and the Federal government’s own budget figuress to prove that it wasn’t Iraq that put us in the poor house, but the Democrats.

Take a look at this chart:

According to the CBO’s numbers, the Iraq war has cost $709 billion. Not the wild estimates by some on the left (to include the absurd claims by James Carville and others that the war cost $3 trillion). And look carefully at the added cost of the war on top of the federal deficit spending shown in red.

Notice anything? Now think back – who was in charge of Congress from 2003 – 2007? And what was the trend in overall deficit spending – including the cost of the Iraq war – through 2007. Any impartial observer would point out the trend was downward. The party in charge of Congress at the time was the GOP.

Who took over the Congress in 2008? And what has happened to deficit spending since? Certainly the cost of Iraq has increased the deficit somewhat, but in comparison to the deficit spending since the Democratic Congress has been in session it pales in comparison.

And now, that war is essentially over and we’ve pulled the last combat brigade out, costs will certainly come down and eventually be quite small. But the trillion dollar yearly deficits – the Obama budget for 2011 is $1.4 trillion dollars – aren’t coming down at all, are they?

Be sure to read Hoven’s piece – he shows his work and provides a powerful tool to debunk the left’s “Iraq is why we have a huge deficit” canard. It has, instead, been the spending of the Democrats in Congress. Hoven’s work easily puts lie to the Democrat’s attempt to once again shift the blame for their own profligacy on to George Bush and the Iraq war.